Contract Law in the Age of Smartphones: Do Smartphones Make for Smarter Consumers?

In addition to their teaching, scholarship, and influence in the broader legal community,Professors Hillman and Rachlinski have gone above and beyond for the students at CLS. Professor Hillman graduated from CLS in 1972 and returned ten years later as part of the faculty. He recently completed work as the reporter for the American Law Institute’s Principles of the Law of Software Contracts. Professor Rachlinski joined the faculty in 1994 after receiving his PhD in psychology and a J.D. from Stanford University. He has offered new perspectives on the influence of human psychology on decision-making by courts, administrative agencies, and regulated communities. In this post, Professors Hillman and Rachlinski respond to an upcoming paper suggesting, among other things, that the age of smartphones diminishes the need to police standard form contracts through doctrines such as unconscionability. They take the contrary view and argue that smartphones do nothing to remove the cognitive factors that lead people to ignore the substance of their standard form contracts.

Robert A. Hillman
Jeffrey J. Rachlinski

Perhaps the greatest current challenge for contract law is keeping pace with changes in technology.  In a 2002 article, we compared standard-form contracting in the paper and digital worlds and concluded that “e-commerce brings new weapons and defenses to both businesses and consumers, but the basic structure [of judicial policing] remains intact.”[1]  In short, we concluded that the technological revolution did not demand a radical new framework for contract law.

In just ten short years, technology has advanced even further. In our paper, we presented the consumer as someone who can comfortably sit at home and shop on the Internet, but now, of course, consumers can bring the Internet with them as they shop. In an important forthcoming paper, Professor Scott Peppet addresses the legal implications of this new advance presented by mobile applications such as smartphones.[2]  He rightly notes that these new devices “saturate our daily experiences with previously unavailable information.”[3]  Peppet ponders whether the law of consumer contracts should address what he calls this “augmented reality” of readily accessible information (including information about the reputation of firms, the quality of goods, and the nature of standard forms) when consumers with smartphones shop in brick and mortar stores such as Wal-Mart.  Among Peppet’s numerous insights, he argues that policing of consumer standard form contracts through doctrines such as unconscionability might be “less and less justified” in the new “augmented reality.”[4]  Further, he suggests that the important “doctrinal question” in determining the enforcement of standard forms should be “whether a given consumer had a smartphone (or other device) at the time of contracting.”[5]

We are nervous about these two conclusions, although Professor Peppet deserves lots of credit for raising the issues and for anticipating our concerns.  Perhaps most important, everyone knows that consumers do not read their standard forms.[6]  There are a host of reasons for this in both the paper and digital worlds, including impatience and information overload.[7]  Similarly, we doubt that consumers will pause very long to use their smartphones to gather information, especially about the quality of the offered standard form.  In addition, to the extent that consumers use their smartphones while shopping, they may not know how to access some of the pertinent information that may be available.  Consumers also may have good reason to distrust some of the information they do access, such as reports by consumers on product reliability and ratings of products or terms that are often very unreliable.  If anything, smartphones are likely to further reduce consumers’ perusal of their standard forms (not to mention cause eyestrain trying to read them).  In such an environment, an argument can be made that judicial policing of standard terms should increase, not decrease.

Furthermore, as Professor Peppet observes, smartphones are becoming ubiquitous among the well-to-do and educated segments of our population, but not among the poor and uneducated.  Although contract law delves into the background of its actors in many respects, we wonder if it is advisable here.  At minimum, deciding enforcement on the basis of smartphone ownership raises lots of additional questions. For example, would ownership of a smartphone be sufficient to heighten the duty of consumers to gather information or should the duty arise only if the consumer brings the device with her at the time of contracting?  If consumers with smartphones are to be held to a higher standard, would such a rule deter people from purchasing such a device or, if the narrower rule applies, deter them from bringing the device with them during shopping?  Should people be penalized for failing to bring them?  As a general matter, should wealth which inevitably increases access to information, heighten the duty to investigate through digital information?

Let’s now assume that the new information afforded by smartphones is reasonably accessible and reliable and has no negative effect on consumers’ reading of standard forms.  Still pertinent to the enforcement of the standard form is the model of consumer behavior that is implicit in contract law.  By enforcing standard form contracts regardless of whether they have been read, under the principle of “blanket asset,”[8] contract law reflects the utility of standard form contracts.  By reviewing such agreements under the unconscionability doctrine, contract law also recognizes the dangers of overreaching created by enforcing standard forms. This approach protects consumers who do not have time to read boilerplate, see no need to do so, and believe contract law will protect them regardless of whether they read the boilerplate.  Professor Peppet is surely correct to observe that if the new augmented reality alters these tendencies or creates sufficient informational substitutes such as information about product reliability, then contract law should recognize this new reality.

But do smartphones change the people who use them?  Smartphones facilitate access to information about quality of products, vendors, and even contract terms.  Smartphones do not, however, alter the cognitive factors that lead consumers to avoid scrutinizing the boilerplate.  If consumers are uninformed because information is costly and difficult to obtain, then Professor Peppet’s observations help put courts on the right path.  But if consumers decline to read or investigate because they believe that doing so is of little use to them, then it is hard to see how smartphones can make much difference.

In conclusion, one foundational issue of contract law is how to evaluate the “reasonable person” for purposes of contract formation and interpretation.  Contract law’s usual response is to measure reasonableness based on all of the circumstances,which include the particular party’s situation. In other words, contract law peruses the reasonable person “in the shoes” of that party.  This model does suggest that contract law should consider whether a consumer has a smartphone, but the approach also requires revisiting several questions we raised above.  For example, would a reasonable smartphone owner bring the device with her, know how to locate the pertinent information, and sort out useful from unreliable information, or are we asking too much of the owner, at least at this time? And even if she has her smartphone, would a reasonable smartphone owner investigate warranties and other boilerplate terms when in fact she believes these kinds of terms will never affect her?

These series of questions and observations do not detract from the importance of Professor Peppet’s paper. Raising the issue of the implications of “augmented reality” gives lawmakers, analysts, and practicing lawyers lots to ponder in the future.  But as we argued over a decade ago in our article on electronic commerce, the basic approach of contract law remains sound.[9] The Internet changed how consumers shop, but did not change the value of boilerplate, nor the need for courts to police boilerplate against overreaching.  Smartphones seem unlikely to alter this basic approach.

[1]Robert A. Hillman & Jeffrey J. Rachlinski,Standard-form Contracting in the Electronic Age, 77 N.Y.U. L. Rev. 429, 495 (2002).
[2] Scott Peppet, Freedom of Contract in an Augmented Reality:  The Case of Consumer Contracts,­­___UCLA L. Rev.___ (forthcoming 2012 ) (manuscript) (available at,  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1919013)
[3]Id.(manuscript at 3).
[4]Id. (manuscript at 33).
[5]Peppet contributes other insights, including the somewhat obvious but often overlooked point that “underlying technological and economic conditions” should determine the nature of contract law.  Id.(manuscript at 54).
[6]See, e.g., Robert A. Hillman,Online Consumer Standard Form Contracting Practices: A survey and Discussion of Legal Implications, inConsumer Protection in the Age of Information Economy 283 (Jane K. Winn ed., 2006).
[7]The most recent description of these reasons is in: Victoria Plaut& Robert P. Bartlett, Blind Consent?  A Social Psychological Investigation of Non-Readership of Click-Through Agreements, ­­___ Law and Human Behavior___, (forthcoming 2011)(manuscript) (available athttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=1916831)(including length, lack of choice, overconfidence, lack of importance); see also Robert A. Hillman, On-line Boilerplate: Would Mandatory Website Disclosure of  e-Standard Terms Backfire?104 Mich. L. Rev.837 (2006); Robert A. Hillman & Ibrahim I. Barakat, Warranties and Disclaimers in the Electronic Age, 11 YaleJ.L. & Tech.1 (2009); Hillman &Rachlinski, supra note 1.
[8]  “Blanket assent” is Karl Llewellyn’s term for the law’s presumption of assent to standard terms with courts striking unconscionable terms.  Hillman &Rachlinski, supra note 1, at 455.
[9]  Hillman and Rachlinski, supra note 1, at 434.

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